Don’t bother saving for college – it will get cheaper

Online learning, deflation will help bring costs down

My friend Dan recently congratulated me on the college graduation of my daughter, having read the advice I gave her in a column.

Dan became a grandfather, again, right around the same time and he asked if I had college advice for his children, the ones who “now have to save a gajillion dollars in the next 18 years for when their babies go off to school, and who think they will never save enough.”

My advice surprised him.

Save what you can, but expect college to be more affordable for newborns than it is for today’s graduates.

Having just come through National College Savings Day (5/29, for the 529 college savings plans), it’s important to recognize that I am not suggesting to parents that tuition costs will ever be cheap — or that parents who want to fund educations don’t save as much as possible — just that new parents could have it a little easier than their forebears.

The paying-for-college dilemma is headed for major change, so the price tag on tuition should be a whole lot less than a gajillion by the time Junior is ready to set off for school. At the very least, the inflation in college costs appears headed for a reversal in trend.

Truthfully, much of that will happen because the cost of tuition has reached the nation’s breaking point. With almost any commodity — and that’s what an education is, no matter how much academics scoff at the idea — once that point is reached, it’s the model, and not the will of the people, that breaks.

The College Board has reported that a “moderate” college budget for an in-state public college for the 2013–2014 academic year averaged $22,826. A moderate budget at a private college averaged $44,750.

While plenty of surveys show costs a bit higher or lower than those levels, what’s important is that virtually every measure of college costs shows that the price tag is 75% to 100% higher today than it was in 1991-92, when the current crop of college graduates was born. It’s up about 150% from the time frame when today’s young parents were born.

Clearly, that rate of inflation can’t keep up forever, and it won’t.

Jeff Weniger, an investment strategist at BMO Global Asset Management, compares college costs to oil prices, noting that around the time gas reached four dollars per gallon, significant inroads were made in fuel efficiency that have helped to stave off inflation since.

He thinks the situation will be much more drastic in the case of college tuitions, saying on my radio show this week that “you could see 100 percent deflation.”

“Within 10 or 20 years, the old wonderful experience I had — going to a dorm room and going to college parties and studying on the side — that’s going to go away and it’s all going to be on the Web for peanuts,” Weniger said.

That sounds off-putting to a generation of grandparents like Dan, who grew up at a time when “correspondence courses” were generally ridiculed as being so easy that they were of little value.

Today, with distance learning, and the ability to mix-and-match courses from different schools to put together a specialized curriculum and more, there is growing social acceptance that degrees earned in this fashion are as valuable as those earned in a more traditional academic setting.

College educators have seen this trend play out in the past. In the 1970s, many people viewed community colleges as a temporary choice for someone whose grades were not good enough to get into a “better” school. By the 1990s, due in large part to the rising cost of education, community colleges were a temporary destination for top students who simply didn’t know what they wanted to study in college, a chance to continue their education at a reasonable price while deciding what they wanted to focus on. At that point, cost-conscious parents sent them off to finish their education at the “more-prestigious” university.

“Sooner or later, it reaches a point of social acceptance,” Weniger said. “’You received an online degree?’ goes from being unusual to where it becomes commonplace. … It takes a little while and then it’s just a norm and everyone is doing it.”

That’s not the only reason colleges will increasingly find themselves under pressure to hold the line on costs.

A survey released this week by the National Foundation for Credit Counseling showed a wide range of opinions and experiences about how consumers viewed student loan debt, with about one-third of respondents saying they felt it was a bad investment and a growing number saying that if they realized the amount of student-loan debt they would rack up, they would not have taken out the loans.

For the respondents who think they will still be paying off their debts by the time their own children get to college someday, that experience is likely to be the breaking point, the driving force to break the cycle of increasingly unrealistic spending on college educations.

If Weniger is right, and a child born today sees 18 years of deflation in the cost of higher education before they go off to school, it doesn’t let Dan and his family off the hook when it comes to college savings, it simply reduces the targets, taking them from the breathtaking stratosphere to something they can plan for and more readily handle.

There are no guarantees; there are plenty of people who simply don’t believe deflation is possible, or who look at the changes coming for the education business and say that while there will be ways to get an education for less, that will only drive up the cost of the traditional “good education” at the school with the lovely campus and the ivy-covered walls.

But it doesn’t change the advice to Dan’s children and new parents everywhere.

Save what you can for college, but look at amassing tuition (or most of it) as a real possibility instead of an impossibility. No matter the trend over the next two decades, you’ll get a lot farther that way.

Mortgage Rates

Powered by

This advertisement is provided by Bankrate, which compiles rate data from more than 4,800 financial institutions. Bankrate is paid by financial institutions whenever users click on display advertisements or on rate table listings enhanced with features like logos, navigation links, and toll free numbers. Dow Jones receives a share of these revenues when users click on a paid placement.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.